Explain: Perpetual inventory system and its aims.
Perpetual inventory system is a process in which a continual track of purchases, sales and losses are kept on a day to day basis. When inventory arrives the value of it is added to the inventory account. Likewise, when the sale is made the value of that item is deducted from the inventory account and added to the cost of goods sold account. On this basis accounting records are continually kept up to date. Physical inventory verification is done at least once a year in order to check the validity of the book records.
It aims basically at two facts :
- Maintenance of bin cards and stores ledgers to know about the quantity and value of stock at any point of time.
- Continuous verification of stock in order to ensure that physical balance tallies the book balance.